![]() ![]() See Publication 550 (2012), Investment Income and Expenses and Short-Term Capital Losses for more details.Īssume that an investor purchases $10,000 of a tax-exempt bond ETF. Report the loss as a short-term capital loss. You can deduct only the amount of loss that is more than the exempt-interest dividends. For an ETF holding bonds (but not for a traditional mutual fund if the fund accrues dividends daily and pays them at least monthly, as most bond funds do), if you received exempt-interest dividends, at least part of your loss is disallowed. One notable point is the treatment of capital losses for a holding period of less than six months. Ĭapital gains and losses are subject to taxation. Washington D.C.: Does not tax in-state or out-of-state municipal bonds.Utah does not tax its own bonds, but also does not tax bonds issued in states that do not tax Utah bonds. New York City: Bonds issued in NY may be triple tax-exempt from city, state, and federal income taxes.Puerto Rico, Guam, and US Virgin Islands: No state can tax bond interest issued by US territories.Some states charge income tax on interest from their own municipal bonds.Such bonds are commonly referred to as AMT bonds. Interest from some municipal bonds is subject to Alternative Minimum Tax (AMT) although whether you actually have to pay AMT depends on your individual circumstances.Interest from municipal bonds is generally exempt from federal income tax and the issuing state's income tax. This opens the market up to a wider range of participants, including tax-exempt institutions and individuals with sufficient tax-exempt space. Through the BAB program, the Federal government directly subsidizes taxable municipal bonds instead of subsidizing municipal bonds via a tax break for their purchasers. Build America Bonds are municipal bonds issued under a program begun in 2008.Interest owed to lenders is paid by taxes levied on the community benefiting from the particular bond-funded project. Assessment Bonds are special types of municipal bonds used to fund a development project.Revenue Bonds are municipal bonds supported by the revenue from a specific project, such as a toll bridge, highway, or local stadium.General Obligation Bonds are municipal bonds secured by the taxing and borrowing power of the municipality issuing it.Municipal bonds are bonds issued by states and local governments. ![]()
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